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| Housing Review 2nd Quarter 2008 |
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Property Trends - Housing Review
South Africa’s economic performance remained strong towards the end of 2007, to a large extent driven by high levels of activity in the building and construction sector.
• The household sector remained under pressure on the back of rising inflation, higher interest rates and the effect of the National Credit Act. The cost of servicing household debt increased to 11% of disposable income, real disposable income growth slowed significantly, and real household consumption expenditure growth tapered off further.
• Nominal and real house price growth slowed down further in the first quarter of 2008, largely as a result of the tightening of monetary policy, stricter requirements for credit extension, and housing having become less affordable.
• The average nominal price of affordable housing increased by 13,8% year-on-year (y/y) to R277 000 on average in the first quarter of 2008 (18,2% y/y in the preceding quarter). Real price growth came to 3,5% y/y in the first quarter of the year, down from 9,0% y/y in the fourth quarter of last year.
• Nominal price growth of 9,5% y/y was recorded in middle-segment housing in the first quarter of 2008 (12,4% y/y in the fourth quarter of 2007), causing the average price of a house in this market segment to come to about R976 000. In real terms, prices dropped by 0,3% y/y in the first quarter of 2008 (+3,7% y/y in the final quarter of 2007).
• In the luxury segment of the market, house prices increased by a nominal 6,7% y/y to about R4,2 million in the first quarter of 2008 (7,6% y/y in the preceding quarter). The average price of houses in this category dropped by a real 2,9% y/y in the first quarter, compared
with a decline of 0,8% y/y recorded in the fourth quarter of 2007.
• At a provincial level, nominal year-on-year house price growth in the middle segment of the market varied between 17,4% y/y and -0,6% y/y in the first quarter of 2008.
• In the country’s major metropolitan areas, nominal growth in house prices of between 19,4% y/y and 1,0% y/y was recorded in the first quarter of the year.
• Nominal growth in house prices along the coast varied between 21,6% y/y and 9,6% y/y in the first quarter of 2008.
• CPIX inflation is forecast to remain under upward pressure in the near term, influencing inflation expectations, which will have a major impact on the demand for higher wages this year.
• Interest rates are expected to rise again in June, with a risk of further rate hikes in the rest of the year if CPIX inflation remains at high levels.
• Nominal house price growth of between 5% and 6% is projected for 2008, resulting in a real price decline of around 4,5% this year, taking account of headline consumer price inflation projections. This will be the
first time since 1999 that real price growth will be in negative territory.
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